Transcript: Nightly Business Report – May 29, 2018

ANNOUNCER: This is NIGHTLY BUSINESS REPORT with Bill Griffeth and Sue
Herera.

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR: Stock tumble. Political
anxiety in Italy rocks markets around the world, and now investors are
wondering if this will be a summer of stock market discontent.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR: Hungry for deals. A little
known private equity firm adds another restaurant to its portfolio as it
quietly expands its food empire.

HERERA: On a tear. Home prices keep going up prompting one industry
expert to warn it`s not sustainable.

Those stories and much more tonight on NIGHTLY BUSINESS REPORT for Tuesday,
May 29th.

GRIFFETH: And we bid you a good evening, everybody. Welcome back from the
long weekend.

Investors did not exactly receive a warm welcome back from that weekend.
Stocks sold off hard first thing this morning and it all started in Europe
where political turmoil in Italy sparked concern that the already fragile
European recovery could unravel and cause global growth to slow.

And the market certainly didn`t like that. The Dow had its worse day in
over a month today, down over 391 points to 24,361, the Nasdaq fell by 37,
the S&P was down 31.

So what`s this all about? The selling was the most intense in the
financial sector. JPMorgan (NYSE:JPM), Goldman Sachs (NYSE:GS) and
American Express (NYSE:EXPR) (NYSE:AXP) were the three worst performing
stocks in the Dow today.

WILFRED FROST, NIGHTLY BUSINESS REPORT CORRESPONDENT: Italy looked set
last week to form a new government that would have seen an unprecedented
coalition between two populist parties, the right wing League and the left-
leaning Five Star movement. This had already spooked markets given both
party`s disregard for fiscal discipline and a past romance with leaving the
euro, but late last week things got worse. The president blocked the
formation of the coalition when their choice for finance minister was too
overtly anti-Euro.

This has led Italian assets to plummet further, because it would almost
inevitably lead to fresh elections. And markets fear a further surge for
the populists.

Italy is the third biggest economy in the Euro zone. Its debt to GDP is
130 percent and its banks and European and global banks hold a lot of
Italy`s sovereign debt. Italy`s bond market is the third largest in the
world after the U.S. and Japan.

This has led to banks globally selling off. There`s been some contagion
with other European nations bond markets like Spain, Portugal and Greece,
albeit much less than 2010 to 2012. All over, this is still an Italian
issue, not a Euro-wide issue. And Europe`s economies are far stronger than
earlier this decade.

And could markets are overreacting? In the March elections both League and
Five Star said they wouldn`t rule together and they dialed back their anti-
Europe rhetoric which allowed them to perform well. Given their left/right
divide, almost like a Bernie Sanders and a Donald Trump, will their base
really turn out again when a coalition now looks likely? Markets today are
saying yes.

For NIGHTLY BUSINESS REPORT, I`m Wilfred Frost.

(END VIDEOTAPE)

HERERA: So, will the unrest in Europe continue to weigh on the U.S.
markets? And what should investors keep in mind when they revisit their
investment strategies?

Joining us to talk about that is Jack Ablin. He is the chief investment
officer at Cresset Wealth Advisors.

HERERA: You know, one of the things that I was hearing from not only
investors but traders in today`s Session is, we`ve seen this story before.
You know, Europe had a lot of turmoil about ten years ago. Greece
certainly did.

But is it different this time? Do we need to worry about what happened in
the past?

ABLIN: Yes, I think we do. It`s certainly a good reference point, Sue.
It`s that constant reminder that the Euro zone collective, this common
currency, this common monetary system is still not cohesive when it comes
to a fiscal program, budget and spending, taxes, and the like.

And so while, for example, we in the U.S. certainly have quite a bit to
disagree about, the simple fact is, yes, every state has a common currency
and the United States has a common fiscal program. We have a national
budget. Once you get into the common Euro zone, that doesn`t occur and
that`s really where we start to see these fissures.

GRIFFETH: Right.

ABLIN: So, we are continually reminded that this is a fragile situation
and not subject to a lot of stress.

GRIFFETH: We just showed the banks, the biggest losers in the Dow today.
Often, they are the ones left holding the bag when there are financial
crises like this. We saw that with Brexit and so forth.

Do you worry about them or is this the kind of a selloff that you`d buy?

ABLIN: Well, you know, we`re looking at buying. I think ultimately this
is a contrived crisis. I don`t think this is something that Italy`s just
going to walk away, default and, you know, go back to the lira.

But I think that it is — you`re absolutely right, Bill. Once we get into
the financials, once we get into the bonds, that`s the circulatory system
of the financial markets. And who knows where this, you know, metastasis
ends up. So, I think investors in the U.S. will probably, you know,
correct and selling first and ask questions later.

And you saw the biggest downers in the U.S. financials were those banks and
financial companies that could potentially have exposure, maybe not to
Italy by itself but to another big lender to Italy, say, a Deutsch Bank or
someone else in Europe.

HERERA: We will be watching. Jack, thank you so much.

ABLIN: Thank you.

HERERA: Jack Ablin with Cresset Wealth Advisors.

GRIFFETH: Now, when there is a steep selloff like we saw today, investors
do tend to take another look at the sectors of the market that have
outperformed, like technology. And that`s what Dominic Chu is doing for us
tonight.

(BEGIN VIDEOTAPE)

DOMINIC CHU, NIGHTLY BUSINESS REPORT CORRESPONDENT: Despite the ups and
downs of the overall market over the past few months, technology as a
sector has managed to hold up relatively well. While the broader S&P 500
is now pretty much flat on the year, tech is up by over 9 percent and it`s
just one of three sectors that`s holding on to gains in 2018.

While a lot of attention is paid to the mega cap tech stocks like Apple
(NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) parent company
Alphabet and Facebook (NASDAQ:FB), because they do have an outsized
influence on the index like the S&P 500 and Nasdaq, they aren`t necessarily
the best performers so far this year. Within technology, other stocks have
produced far better returns.

That`s not to say that those mega cap tech stocks aren`t loved by the
experts. According to data from Fact Set, some 85 percent of analysts who
track Microsoft (NASDAQ:MSFT) stock recommend buying it, 89 percent of
analysts like Alphabet and 93 percent of analysts say investors should buy
Facebook (NASDAQ:FB).

Traders will be keeping a close eye, however, on how the chip sector does
overall. Over the past few years, the industry group as a whole has been
an outperformer and some traders may be looking towards those semiconductor
stocks as a gauge of market sentiment. They help lead on the bull run to
record highs, so will they also lead if the market decides to head south?

For NIGHTLY BUSINESS REPORT, I`m Dominic Chu.

(END VIDEOTAPE)

HERERA: Investors were also concerned today about trade after the Trump
administration moved ahead with tough measures on China. The White House
has renewed its threat to place 25 percent tariffs on $50 billion worth of
Chinese goods in retaliation for what it calls unfair trade practices. The
announcement came ahead of a second round of high profile trade talks
between the world`s two largest economies later this week.

GRIFFETH: Oil prices extended last week`s route again today. Much of that
selling is due to the expectation that OPEC and Russia and other producers
are going to wind down that deal to cap output during its next meeting,
which is next month. As we reported last week, Saudi Arabia and Russia
have already signaled that they are willing to exit that production deal to
offset declining Venezuelan production and also the possible loss of
Iranian oil due to U.S. sanctions.

HERERA: Consumer confidence in the economy is near 18-year highs.
According to the conference board, many are pleased with the current state
of the economy, especially the job market. But some did express less
optimism about the future which economists believe may have to do with
rising gasoline prices.

GRIFFETH: But when people do feel good about the economy, they tend to
make big purchases, like buying a house, and the latest report on that
sector shows that home prices are rising at a pretty fast clip. And that
has some experts sending out warning calls right now.

Diana Olick has our details tonight.

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT: Home prices continue
to rise faster than inflation and there appears to be no sign of easing so
far. Prices were up 6.5 percent nationally in March compared to a year
ago. That according to the much watched S&P Core Logic Case Shiller
report. The annual gains have been widening now for more than two years.

That prompted the chief economist from the National Association of Realtors
to warn the run up in prices is simply not sustainable. A Zillow senior
economist however argued that the current price gains, which are the widest
in 12 years, are largely sustainable due to the strong economy and strong
demand from millennials. He did admit though that deteriorating
affordability could begin to give some buyers pause and keep them renting
longer.

In fact, first-time buyers pulled back at the start of this year according
to Genworth Mortgage Insurance. That hasn`t happened in four years.

And in yet another study, Trulia found that buyers are finding what they`re
looking for. The caveat though, that may be because entry-level buyers are
dropping out as the number of searches on Trulia shifts to higher price
here, meaning only those able to afford more are matching up to available
supply.

For NIGHTLY BUSINESS REPORT, I`m Diana Olick in Washington.

(END VIDEOTAPE)

HERERA: It is time to take a look at some of today`s upgrades and
downgrades.

Ford`s rating was upgraded to buy from hold at Jefferies. The analyst says
Ford is ahead of its global competitors in rethinking how it allocates
capital. The price target is $14. The stock fell a fraction in an
otherwise down market to $11.44.

Phillips 66 ratings was upgraded to outperform from market perform at Wells
Fargo (NYSE:WFC). The analyst says new fuel rules could be good for the
refiners including Phillips 66. The price target is $134. The shares rose
1 percent to $116.81.

GRIFFETH: Quest diagnostics was upgraded to overweight from equal weight
at Morgan Stanley (NYSE:MS) today. The analyst there calls testing labs
like Quest a relative safe haven in the health care service field. The
price target: $120. The stock rose fractionally to $106.35 today.

And Morgan Stanley (NYSE:MS) raised its waiting on Roku. The analyst cites
solid user growth and says that Roku is growing into its valuation now.
Price target $38. That stock was up slightly to $38.60.

HERERA: Still ahead, saving for college. There are some simple plans to
help finance education, so why aren`t more people using them?

(MUSIC)

GRIFFETH: A private equity firm that you likely have never heard of is
quietly amassing a global food empire, and it grew a bit more today. JAB
Holdings has now agreed to buy Pret A Manger. That`s a fast casual
restaurant chain that has been rapidly expanding here in the U.S.

JAB`s portfolio of companies is full of familiar names, but its own name is
virtually unknown and it isn`t exactly your typical private equity firm
either.

(BEGIN VIDEO TAPE)

GRIFFETH: Pret A Manger, which is French for ready to eat, is a British
sandwich and salad specialist with 500 stores in nine countries. Fewer
than 100 of them are here in the United States.

The deal reportedly worth almost $2 billion adds to JAB`s rapidly growing
portfolio of fast casual restaurants, which also includes Au Bon Pain and
Panera which it bought for $7 million.

JAB also has a portfolio of beverage companies. It owns a number of coffee
brands, for example, including Pete`s, Caribou and Stump Town and
Intelligentsia. And in 2015, it bought Keurig Green Mountain Coffee for
$13.9 billion. And just this past January, it bought Dr. Pepper Snapple
for almost $19 billion.

JAB is also big on breakfast. It owns Krispy Kreme Donuts and Einstein
Brother Bagels.

JAB Holdings is based in Luxembourg. It`s owned by the Reimann family of
Germany. But unlike many private equity firms which typically swoop in and
buy companies and then immediately start cutting costs, JAB is known for
holding on to and growing its assets.

As for Pret A Manger, 2017 marked its tenth straight year of growth, so
it`s clearly on solid footing, but with inflation creep beginning to change
the economic environment, questions are being asked about the short-term
future of fast casual restaurants.

(END VIDEOTAPE)

GRIFFETH: And in case you weren`t keeping score just now, since 2015, JAB
has spent more than $40 billion on food and beverage acquisitions.

KKR (NYSE:KKR) said it was adding to a series of investments in the tech
sector with its latest deal to buy the information tech company BMC
software from Bain Capital and Golden Gate Capital. While the financial
terms of that deal were not disclosed, “The New York Post” citing one
source recently said BMC could be worth about $10 billion. KKR (NYSE:KKR)
shares fell nearly 2.5 percent to $21.91.

Shares of Universal (NYSE:UVV) Display got a lift after a South Korean
publication reported that Apple (NASDAQ:AAPL) will make several of its new
iPhone models with OLED screens. The tech giant currently uses LCD
screens. Universal (NYSE:UVV) Display specializes in OLED technology.
Shares of Universal (NYSE:UVV) Display rose nearly 4 percent to $103.60.

Alibaba said it is part of a group of investors who plan to take a 10
percent stake in the Chinese delivery company ZTO Express (NYSE:EXPR) for
just under $1.5 billion. ZTO said the investment will help streamline
operations and cut costs. Shares of Alibaba were off a fraction to $198
even. Meanwhile, shares of ZTO Express (NYSE:EXPR) popped nearly 8 percent
to $20.82.

GRIFFETH: Elsewhere, petroleum and natural gas producer Sandridge Energy
(NYSE:SD) is urging shareholders to vote for only two of the four directors
of billionaire investor Carl Icahn has recommended. Sandridge clams that
Icahn who is the company`s largest investor is attempting to gain control
of Sandridge without paying an appropriate premium. Shares of Sandridge
Energy (NYSE:SD) were off a fraction today to $14.05.

After the bell tonight, HP said that stronger demand for its laptops and
desktops help sales top expectations. The computer maker also raised its
revenue outlook for the full year. Shares were initially higher in
afterhours. They ended the regular session down about 3 percent to $21.30.

Also after the bell tonight, cloud software company Salesforce reported
stronger than expected earnings thanks in part to a rise in subscription
revenues. The company also gave upbeat sales guidance for the current
quarter and it raised its full year forecast as well, and shares initially
traded higher in the extended session, ended the regular day down a
fraction at $126.88.

HERERA: Well, saving for college is a priority for many parents, and one
way to save is by using a 529 savings plan. But many aren`t even sure what
a 529 is.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: No, I don`t know what it is.

UNIDENTIFIED MALE: I have zero idea.

UNIDENTIFIED MALE: I don`t know what that is.

UNIDENTIFIED FEMALE: I believe a 529 plan is a plan where you put money
away for your — you start young for your children.

(END VIDOE CLIP)

HERERA: Close.

And given that today is May 29th, otherwise known as National 529 College
Savings Plan Day, we figured it was a perfect time to talk to senior
personal finance correspondent Sharon Epperson.

And for those who don`t know, Sharon, what exactly — she was very close.

SHARON EPPERSON, NIGHTLY BUSINESS REPORT CORRESPONDENT: She was very
close.

A 529 is education savings tool that parents or anyone, actually, can use
to save for qualifying higher education expenses like tuition, room and
board, books, Internet access, computer supplies. It is anyone who can set
it up, which is a lot of people don`t realize, and the beneficiary can be
anyone. There are no income limits and the beneficiary can be your child,
can be yourself if you decide to go back to school, can be a grandchild,
niece.

And the other great thing is that it invests broadly. It invests in many
different types of funds, probably not as many as you may like, but there
are options there. You have to look at fees also. And you can invest in
any state`s plan. You don`t have to invest in one just because it`s set up
by your state.

HERERA: You do it based on where you think the child is going to go to
school maybe?

EPPERSON: You don`t have to do that either, but you may — you know,
depending what kind of break you`re going to get. If you do it in your
state, you have a better chance of getting a state income tax break.

GRIFFETH: Now, a wise sage told me many years ago, you know, when you`re
prioritizing at a certain point, that you should save for your retirement
ahead of your child`s college education plan. How does this factor into
all of that?

EPPERSON: You have to do both.

GRIFFETH: Yes.

EPPERSON: That`s the hard part.

GRIFFETH: You find that —

EPPERSON: You actually have to do both and you can`t do either/or, what
you should do is get the free money first. So, if you have a 401k plan at
your job, you want to contribute that, at least enough to get the matching
contribution and get that free money. But then you have to think about how
you`re going to save for your child`s education, and just $100 a month. If
you start with a child that`s born for 18 years, you`ll have $21,600 saved
and use that money grows at 5 percent, you could easily have $35,000 saved
for at least one year of college, maybe a little bit more.

GRIFFETH: Right. What about financial aid? Because a lot of kids want to
get student loans or qualify for financial aid. Does what you have saved
in 529 impact that?

EPPERSON: It does. Because you have to include that on the FAFSA form,
that pre-application for federal student aid form. You must include the
fact that you have a 529 plan, but it will count if it`s in the parents`
name as the parents` asset. And so, that does not impact you as negatively
as if it was the student`s asset. So, that`s something to remember.

And a lot of grandparents want to open a 529 plan for their grandkids.
That doesn`t count on the FAFSA form at all. But then when they take it
out that money out and give it to the child, that does count as the
student`s income.

HERERA: All right. You`re done.

GRIFFETH: You still worry about that.

HERERA: I still have to worry about that.

Thanks, Sharon, so much. Sharon Epperson.

EPPERSON: Sure.

GRIFFETH: Some day, I`ll worry about the grandparent thing.

EPPERSON: There you go.

GRIFFETH: Coming up, why Solo failed to find the force and why Disney
(NYSE:DIS) may now have to rethink its “Star Wars” strategy.

(MUSIC)

GRIFFETH: ABC has canceled its top rated program, “Roseanne” following a
series of offensive tweets by the show`s biggest star, Roseanne Barr. In a
statement, ABC said and we quote: Roseanne`s Twitter statement is
abhorrent, repugnant and inconsistent with our values, and we have decided
to cancel her show.

Before the cancellation, Barr herself apologized for her tweet that
targeted Valerie Jarrett who was an adviser to former President Obama.

HERERA: Starbucks (NASDAQ:SBUX) closed more than 8,000 stores today for a
few hours for racial bias training. As we reported, the training comes
more than a month after a Starbucks (NASDAQ:SBUX) manager called police on
two black men who had been waiting in the store for a friend before buying
something. Analysts say the store closures could cost Starbucks
(NASDAQ:SBUX) $12 million in lost sales.

GRIFFETH: Now, Starbucks (NASDAQ:SBUX) chose to conduct this racial bias
training in a very public way, and as Sue just mentioned, at a financial
cost as well to the company. Other companies do similar training but they
do tend to not draw attention to it.

So, is this a good strategy, not just for Starbucks (NASDAQ:SBUX) but for
other brands as well?

GRIFFETH: Are there risks to this kind of public display of teaching your
employees racial bias?

CRUTCHFIELD: Well, it`s really a question of delivering it. You know,
purpose builds profits or at least that`s the strategy. So, really, it`s a
question of can you actually deliver it? That`s really what we`re
questioning with Starbucks (NASDAQ:SBUX) today.

You know, they`re under pressure to show their leadership and their impact
on these very sensitive issues of gender and race, and it really is a
question of, you know, what they deliver once they actually do this. The
most important thing is they are saying they`re prepared to take a hit in
their business to actually do something right. So, in a sense, that shows
the goodwill of their intent.

HERERA: Does it match up with their pledge of social responsibility? It
seems as though it does.

CRUTCHFIELD: It really aligns very well, actually, with the core strategy
at Starbucks (NASDAQ:SBUX). In fact, part of their vision statement wraps
around inspiring and nurturing the human spirit. So, I can`t think of two
better subjects than gender and race to actually answer that as a strategy
and show that it really delivers what it means.

So, it`s not so much your ability as a business, it`s more about the
choices you make that define who you are and Starbucks (NASDAQ:SBUX) is
making a very deliberate choice here in terms of their strategy to, as it
were, train away implicit bias. And I think to your point, this has been
going on for decades. Many companies, police departments have all been
trying to train away implicit bias.

GRIFFETH: Right.

CRUTCHFIELD: And really the question is, does it work? I think that`s a
big question here.

GRIFFETH: And because it was so public, the closing of the stores and
everything, obviously, they`re trying to spur the national conversation in
that regard.

Do you see other companies then maybe following their lead in this?

CRUTCHFIELD: Well, I think, you know, a leader has to lead. I think
that`s what Starbucks (NASDAQ:SBUX) is doing.

You know, there`s massive disruption happening in the market out there.
Customers want to know about the brand value. They want to know if those
values align with them. They want to know where you stand on race, and
gender, and environment. They want to know what your leadership is and
what your impact is on those issues.

It`s very different from what it was before. So, I think what we`re seeing
here is Starbucks (NASDAQ:SBUX) leading the charge of something we`ll be
seeing more and more, which is about purpose-driven brands.

GRIFFETH: Dean, always good to see you. Thank you for your thoughts
tonight.

CRUTCHFIELD: Thank you.

GRIFFETH: Dean Crutchfield with Crutchfield and Partners.

HERERA: Expectations were high for a big weekend at the box office but
that`s not what happened. Even with the debut of the latest “Star Wars”
movie, and that raises questions for Disney (NYSE:DIS) which saw shares
fall today about one of its most lucrative franchises.

Julia Boorstin has the details.

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT: It was a perfect
storm of timing, competition and perhaps “Star Wars” fatigue. “Solo”
bringing in $103 million at the domestic box office over the four-day
holiday weekend, under already lowered expectations. And internationally,
the film just brought in just $65 million. “Solo`s” global take just more
than half of Disney`s other “Star Wars” spin-up, “Rogue I” in its December
2016 debut.

Perhaps the biggest factor depressing Solo`s performance, it`s been just
five months since the last “Star Wars” film, whereas Disney`s last three
releases were a year apart. It`s also the first to be released in the
crowded summer season.

PAUL DERGARABEDIAN, COMSCORE: With “The Last Jedi” fresh in the minds of
the moviegoers and so much competition over Memorial weekend from “Dead
Pool 2” and its weekend, “Avengers: Infinity War” in its fifth weekend,
this made it tough for “Solo” to really break out and exceed expectations.

BOORSTIN: FBR analyst Barton Crockett projecting, quote, that “Solo” will
be close to break-even over its life versus the $400 million profit we had
assumed, about a 2 percent headwind to Disney`s estimates this year.

Now, the negative impact to Disney (NYSE:DIS) all hinges on how the movie
performs in the coming weeks, when it`s up against less competition but
also faces less than stellar audience reviews.

DERGARABEDIAN: I think what Disney (NYSE:DIS) is going to do is take this
as a lesson and apply it going forward. The “Star Wars” brand is massive.
It`s going to be playing out for decades to come. So, for Disney
(NYSE:DIS), this being a long-term play, and with a lot of projects in the
works right now, “Episode 9” set for December 20 of 2019, “Star Wars” has
nowhere to go but up.

BOORSTIN: And it`s worth noting that the next “Star Wars” film, which had
been scheduled to premiere next May, Disney (NYSE:DIS) moved back to its
traditional Christmas window when the force won`t face this kind of intense
competition from super heroes.

For NIGHTLY BUSINESS REPORT, I`m Julia Boorstin in Los Angeles.

(END VIDEOTAPE)

GRIFFETH: And before we go, another look at the day on Wall Street in this
selloff. The Italian election results over the weekend had the European
markets lower. Ours as well, the Dow down 391 points. The Nasdaq fell by
37. S&P 500 down 31.

HERERA: What a way to start the week, right?

GRIFFETH: Indeed.

HERERA: All right. Well, that does it for us tonight. I`m Sue Herera.
Thanks for joining us.

GRIFFETH: I`m Bill Griffeth. Have a great evening. See you tomorrow.

END

Nightly Business Report transcripts and video are available on-line post
broadcast at http://nbr.com. The program is transcribed by ASC Services II
Media, LLC. Updates may be posted at a later date. The views of our guests
and commentators are their own and do not necessarily represent the views
of Nightly Business Report, or CNBC, Inc. Information presented on Nightly
Business Report is not and should not be considered as investment advice.
(c) 2018 CNBC, Inc.

Hot Topics

Hosts

About NBR

“Nightly Business Report produced by CNBC” (NBR) is an award-winning and highly-respected nightly business news program that airs on public television. Television’s longest-running evening business news broadcast, “NBR” features in-depth coverage and analysis of the biggest financial news stories of the day and access to some of the world’s top business leaders and policy makers.